Asian currencies drop as Fed stance drives up greenback

Bloomberg

Asian currencies had a second weekly decline as an improving US economy and the US Federal Reserve’s decision not to embark on further monetary easing boosted demand for the US dollar.

Malaysia’s ringgit led losses after the government reported factory production rose the least in six months in January following data last week showing the smallest increase in exports since 2010. The rupee posted its worst weekly losing streak for the year after policymakers left interest rates unchanged, citing inflation risks caused by higher oil prices.

“This week’s main trend was the dollar’s appreciation supported by signs of US economic improvement,” said Minori Uchida, a senior analyst in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd. “Based on the series of data recently, the market also views the Fed may not keep low interest rates until 2014 as previously predicted.”

The ringgit fell 1.7 percent from a week ago to 3.0613 per US dollar in Kuala Lumpur yesterday, after reaching a seven-week low on Thursday.

The New Taiwan dollar slipped 0.2 percent this week to NT$29.562.

The Philippine peso declined 1.1 percent to 43.068, the Indian rupee dropped 0.7 percent to 50.1912 and South Korea’s won lost 0.7 percent to 1,125.78.

The yuan fell for a third week after the government reported the smallest increase in consumer prices in 20 months on Friday last week. The central bank weakened its daily reference rate by 0.25 percent on Friday, the most in a week, to 6.3200 per US dollar. The currency dropped 0.2 percent from March 9 to 6.3227 in Shanghai, according to the China Foreign Exchange Trade System.

“China’s policymakers are definitely increasing volatility,” said Craig Chan, the Singapore-based head of foreign exchange for Asia outside of Japan at Nomura Holdings Inc. “They want to eventually move to a more market-driven currency.”

Indonesia’s rupiah dropped 0.4 percent to 9,156 per US dollar and hit a two-month low of 9,218 on Thursday. The currency completed a second weekly decline after overseas investors cut holdings of sovereign debt on concern government plans to raise energy prices will stoke inflation.